Starting your very first business means you have to spend a lot of time thinking about money. How will you raise funds for the startup? Can you even afford to start a business in the first place? Keeping this in mind, there are a few things you need to do before starting your business to prepare your personal finances for what’s to come.
Build your credit score
There’s every chance you’ll need a loan to start your business – unless you find an angel investor or have loads of money. As a result, you need to go to a lender and apply for this loan. You will only get one if your credit score is up to scratch. So, there are two things you should do. The first is find somewhere like Experian where you can request a credit check to see what you’re working with. The second is to build up your credit score so it’s as good as it can possibly be. This means you’ll run into fewer disruptions and get all the loan you need to start your company.
Consider selling your home and downsizing
Look, selling your home seems like a ‘worst case’ scenario, but it can actually be a smart financial decision when starting a business. As you begin growing your company, you will need all the funds you can get. Not only that, but you could do with some emergency funds in case things go wrong during your early days. By selling your home, you can raise these emergency funds and have some money to fall back on.
Plus, there are companies these days like Wren Realty, Inc. that offer cash for your home and buy it in weeks. So, you can push a sale very quickly and have the money ready when you need it. Also, think of it as temporarily downsizing too. Hopefully, having this extra money can help fuel your business and light the fire of success. In a few years, you’ll have enough money for two houses!
Create a separate bank account for business
The final piece of advice I have for you is to try and keep your personal and business finances separate. You don’t want to keep dipping your hand into the same jar all the time. It’s so easy to start spending too much or just completely ruining your finances. Instead, create a business bank account instead. I think NerdWallet have some good articles on this subject so you can check them out to learn the specifics about business banking. All I’ll say is that you find it much easier to manage your money and avoid debt when you keep the two things separate from one another.
After this, you should have your personal finances in the right shape to deal with starting a business. Now, you can press forward with your plans and start the best business possible. You should have a good enough credit rating to find a big loan, while also having emergency funds to fall back on just in case.